Nest Labs Brings Apple Magic To Thermostats

This story appears in the September 24, 2012 issue of Forbes.
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Tony Fadell (Photo credit: Kevin Krejci)

This blog originally appeared as my "Innovation Rules" column in the September 24, 2012, issue of Forbes Magazine.

If you can figure out what's abundant and what's scarce, you'll have valuable insight into why an economy works the way it does. But that alone won't make you rich. You must also figure out what's becoming abundant or scarce.

In technology Moore's Law makes the abundance part easy to figure out. Computer power, storage and bandwidth get better and cheaper by the year. Voilà: a boom in smartphones, tablets, laptops, apps, Internet media, social media. All are as abundant as rain in a hurricane.

Scarce (and getting more so) is our attention span. When I grew up in a small Midwestern city in the 1950s–70s, life moved slowly and predictably. Until cable TV arrived in the late 1970s we had two television stations. It can now be admitted: We were bored! Anything could get our attention: a third-rate circus, a broken fire hydrant, a slide show of Grandpa's vacation to Norway. When you're bored, your attention threshold is very low.

But what is scarce when you're busy?

SILICON VALLEY THERMOSTAT

"A great experience," says Apple veteran Tony Fadell. Two years ago Fadell started Nest Labs, with the idea of bringing an Apple-like experience to household thermostats. If that sounds a little nuts, Fadell--rich from his shares in Apple and retired--didn't care. He could afford a fling. "I was obsessed with building a green home." But solar panels and deep architectural challenges didn't interest Fadell. "I wanted a device I could hold in my hand and control the house."

The Apple Macintosh was designed as a computer for everyone. Fadell's thermostat, which began selling a year ago, is designed to give everyone a greener home. "Half of a home's heating and cooling costs are controlled by the thermostat," he says. "For the average home in America that's $1,500 a year." This is how Fadell rationalizes his Nest thermostat's cost of $249 compared with the industry average of $79.

That's the rational appeal. Fadell's time at Apple taught him about the emotional side of product design and marketing.

"The Sony Walkman did it with superb hardware design. Apple's Macintosh raised the stakes with the integration of hardware and software. The iPod added services in the form of iTunes. Today a great experience touches everything. It's packaging, hardware, software, services, accessories, advertising. It all has to work together. That's very hard to do." In other words it's scarce.

To bolster its green image the Nest thermostat comes in a bamboo box. The box contains a custom-made screwdriver and screws to help the customer attach Nest's hockey-puck-shaped thermostat to a wall. Custom screws? Any business school would flunk you in a minute for spending money on custom screws.